Enbridge Energy Partners, L.P. (NYSE:EEP) reported earnings yesterday, and it wasn’t pretty. The partnership missed analyst estimates badly, recording revenue of $1.67 billion and earnings of $0.13 per unit compared to expectations of $1.75 billion and $0.22 per unit, respectively. We always say that there is more to an earnings release than the top and bottom lines, and in Enbridge’s case, it’s a long list of things that did not go its way.
Net income was roughly three-quarters of what the partnership posted in the year-ago quarter. Adjusted net income per unit, the aforementioned $0.13, was roughly half of what it was in the second quarter of 2012.
Certainly not what you want to see, though investors might have been expecting this, based on Enbridge Energy Partners, L.P. (NYSE:EEP)’ first-quarter results. Last quarter, the partnership suffered at the hands of low volumes on its liquids lines and low prices for natural gas liquids. This quarter, those trends continued and a few other things went wrong as well, including unplanned refinery maintenance, ethane rejection on the midcontinent natural gas systems, and a $13.1 million contribution to the preferred unit distributions due in 2015.
If there was any good news coming out of the company yesterday, it was from the liquids segment. Despite volume declines on all three systems, the segment posted a $12.4 million pop in operating income. The increase was driven by higher rates and higher tariff recoveries, though part of those gains were eviscerated by the leak at its Cushing terminal in May, the refinery outage, and competition from rail on the North Dakota system.
Management addressed the railroad situation in its analyst call later in the day. The view is that if foreign and domestic crude oil differentials remain as tight as they are, rail will become prohibitively expensive for Bakken shippers and volumes will revert back to Enbridge’s North Dakota pipelines. And, in fact, that has started to happen and volumes are slowly trickling up in the third quarter. Management specifically claimed that single-digit differentials in crude prices discourage rail shipping, at the same time reaffirming that the partnership’s new rail facility that just came online in Berthold, N.D., is on the take-or-pay contract system, meaning producers pay for their space whether or not they’re actually shipping oil .
On the flip side of the coin, operating income for Enbridge Energy Partners, L.P. (NYSE:EEP)’s natural gas segment was about one-third the amount it posted last year, coming in at $15.7 million. The big problems here were lower realized NGL prices and ethane rejection.